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An employee who quit his job was not entitled to a bonus payout, the Ontario Court of Appeal ruled, finding that the language of the bonus plan requiring "active employment" as a condition to receive a payout did not violate Ontario's Employment Standards Act (ESA).
Section 11 of the ESA requires an employer to pay any wages owed to the employee within seven days of the last day of employment or on the employee's next scheduled payday, whichever is later. Section 13 prohibits employers from "withhold[ing] wages payable to an employee."
The employee in the case worked for the company for approximately 14 years before resigning in 2011. Under the company's variable incentive plan (VIP), a bonus awarded for a given calendar year was payable in equal installments over the following three years. Installment payouts would be made in February or March of each year.
The employee resigned before the pay-out dates for the final installment of his 2009 bonus and two installments of his 2010 bonus.
The terms of the VIP changed from time to time, but the relevant language from the 2007 plan stated as follows:
In the event a participant's continuous active employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.
The employee had also agreed to and signed a letter in 2010 further emphasizing the active employment requirement. The company declined to pay out the employee's bonus on the basis that he was not actively employed on the relevant dates.
The Court of Appeal found that the language of the VIP, combined with the 2010 letter, was clear and unambiguous in disentitling the employee to the bonus payouts upon termination. The appellate court further upheld the lower court's ruling that the language did not violate the relevant parts of the ESA.
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The court found that while the three installments at issue would have constituted wages payable to the employee upon each of the future payout dates, they were not "wages to which the appellant [was] entitled" on the date he resigned and his employment ended. The ESA does not have the effect of accelerating the employer's obligation to pay out future installments after an employee has resigned.
Bois v. MD Physician Services Inc., No. C63311, 2017 ONCA 857 (Nov. 8, 2017).
Professional Pointer: As the Court of Appeal emphasized in this case, it is open to the parties agreeing on how and when any bonus is declared, earned, accrued and payable. However, limiting an employee's entitlement to receive nondiscretionary bonus payments after termination requires the use of clear, unambiguous language and can be difficult to do in practice. Employers should note that courts have found that employees who are fired without cause are entitled to bonus payments that would have been payable during the reasonable notice period despite bonus plan language requiring "active employment."
Amanda Boyce is an attorney with Stringer LLP, the Worklaw® Network member firm in Toronto.
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